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Hi Julie. This posting is a follow-up to my response of last night. Here are some additional thoughts.

Your aunts have two responsibilities under the trust, from what you have stated. They are responsible for managing the money, and they are responsible for spending the money for your father's care and keeping. Treat these as distinct functions. If they are competent and comfortable with the money management function they should do so. If they are not they should retain someone, preferably not a bank trust department, to manage the money according to their directions. By all means this should be a person or entity who will provide this service on a fee basis. I would propose the following for your consideration as directions: set aside $50,000 in a very liquid vehicle to be drawn down at the rate of $4,000 per month. I know that according to your information the shortfall is only about $3,000 per month; I'm just being conservative. This pool of money should be sufficient to carry your father for a year, including special expenditures. During this time period the remainder should be invested half for conservative growth, where some potential growth is foregone in order to achieve a higher degree of asset stability. The remaining half should be invested for more substantial growth.

During the course of the year the manager should selectively harvest sufficient money from the investments to reforest the spend-down account. The remaining assets should be rebalanced fifty/fifty.

This strategy should provide financial support for your father well past his life expectancy. The gains on the growth-invested portion should offset part but not all of the draw-down. The rate of draw-down would probably only be about 5% per year, which would mean that the funds would sustain him for well past his life expectancy.

The second function, one of spending the money, should be one of largely making "policy" decisions and then reviewing them periodically. By policy decisions I mean things like the above, plus adoption of the overall "game plan" as is being discussed here in general. Implementation of this game plan can take place from some distance; that need not be a factor. They may wish for you or someone near your father to verify his needs periodically and report to them. They could then direct expenditures as needed.

Some may say that active trading will produce short term gains, which will be taxed heavily. My opinion is that under the circumstances this is a moot point. Your father's tax return will claim as itemized deductions the mortgage interest and taxes on his home (now a rental property) plus the depreciation. In addition, all of his expenses beyond his tier two threshhold will be deductible medical expenses. These deductions will make any tax on gains and from dividends largely a non starter.

I suggest that since this trust was established primarily for his care, these funds be spent down FIRST as needed.

With regard to the $200,000 investments which he has, it is important to understand what disposition your father wished to make of these assets upon his passing. Part of honoring you father is in doing what you can to see that his wishes are implemented. Given that the trust assets should more than account for his needs, except in the most extreme circumstances, you might, along with the person holding power of attorney, begin to reposition those assets.

Let us assume that your father wanted these assets left to you, and your hyopthetical (or possibly actual) siblings. The attorney in fact could effect gifts to you from these assets on an annual basis. You and your siblings could then consider establishing a grantor trust to house these funds during your father's lifetime. These funds could be invested for fairly robust growth, since there is no apparent need for them for the foreseeable time, except possibly for maintenance expenditures on the home. The funds should be gifted to you; you should place them in the trust you establish. They should not be transferred directly from your father's account into the trust.

In the event your father would have need of these assets, which would mean that the trust assets had been exhausted (an unlikely eventuality), he would most likely qualify for medicaid. We're talking about actions at the extremities here--not a very high degree of probability. In this event you could pay for charges, special services, extras not covered by medicaid in order to maintain the level of care for your father at his pre-medicaid levels. By protecting these assets you will have them available for this purpose. Left in his estate they would be consumed, and he would then qualify for medicaid with no additional assets available to upgrade his care.

Upon his death, if medicaid came into the picture, the home would be sold and equity to the extent of medicaid expenses would be taken by the state. Assume that the house will yield nothing. But the other assets could then be distributed according to your father's wishes. This is why paying off the mortgage with this money is not a prudent move.

In summary, with careful planning I think you have more than enough assets to work with to provide for your father's care and keeping, and to see that his wishes are also carried out.

(I'm sure you have taken ample steps to acquaint yourself with the unfolding of this chapter of your father's life. If you haven't come across it yet, you might find Sherwin B. Nuland's chapter in "How We Die: Reflections on Life's Final Chapter" (Vantage Books) on Alzheimer's disease useful.)

I wish you well in your journey.

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